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Factor Substitution in U.S. Manufacturing: Does Plant Size Matter?

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  • Nguyen, Sang V
  • Streitwieser, Mary L

Abstract

We use micro data for 10,412 U.S. manufacturing plants to estimate the degrees of factor substitution by industry and by plant size. We find that (1) capital, labor, energy and materials are substitutes in production, and (2) the degrees of substitution among inputs are quite similar across plant sizes in a majority of industries. Two important applications of these findings are that (1) small plants are typically as flexible as large plants in factor substitution; consequently, economic policies such as energy conservation policies that result in rising energy prices would not cause negative effects on either large or small U.S. manufacturing plants; and (2) since energy and capital are found to be substitutes, the 1973 energy crisis is unlikely to be a significant factor contributing to the post 1973 productivity slowdown. Copyright 1999 by Kluwer Academic Publishers

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  • Nguyen, Sang V & Streitwieser, Mary L, 1999. "Factor Substitution in U.S. Manufacturing: Does Plant Size Matter?," Small Business Economics, Springer, vol. 12(1), pages 41-57, February.
  • Handle: RePEc:kap:sbusec:v:12:y:1999:i:1:p:41-57
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    Cited by:

    1. Tamminen, Saara & Tuomaala, Eljas, 2012. "Variation in price and substitution elasticities between sectors – A microdata analysis," Working Papers 34, Government Institute for Economic Research Finland (VATT).
    2. Haller, Stefanie A. & Hyland, Marie, 2014. "Capital–energy substitution: Evidence from a panel of Irish manufacturing firms," Energy Economics, Elsevier, vol. 45(C), pages 501-510.
    3. Zha, Donglan & Ding, Ning, 2014. "Elasticities of substitution between energy and non-energy inputs in China power sector," Economic Modelling, Elsevier, vol. 38(C), pages 564-571.
    4. Bardazzi, Rossella & Oropallo, Filippo & Pazienza, Maria Grazia, 2015. "Do manufacturing firms react to energy prices? Evidence from Italy," Energy Economics, Elsevier, vol. 49(C), pages 168-181.
    5. Arnberg, Soren & Bjorner, Thomas Bue, 2007. "Substitution between energy, capital and labour within industrial companies: A micro panel data analysis," Resource and Energy Economics, Elsevier, vol. 29(2), pages 122-136, May.
    6. Suho Bae, 2009. "The responses of manufacturing businesses to geographical differences in electricity prices," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 43(2), pages 453-472, June.
    7. Suho Bae, 2010. "Public Versus Private Delivery Of Municipal Solid Waste Services: The Case Of North Carolina," Contemporary Economic Policy, Western Economic Association International, vol. 28(3), pages 414-428, July.

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